Wednesday, 16 September 2015

Why private equity investment in insurance makes sense

As many of you know, the latest buzzword is FinTech. Considerable money is coming to vendors that are attempting to define the next major technological leap in financial services. This chart, from CB Insights, shows the explosive growth in FinTech investments. It is an exciting time.

What I find interesting is that Private Equity firms are also finding the more traditional insurance market interesting. For example, Moelis Capital made an investment in Insurance Technologies last fall. Insurance Technologies focuses on the front-end of Life insurance, including illustrations and electronic applications.

More recently, Moelis Capital announced an investment in FAST Technologies, which focuses on the Life Policy Administration System (PAS) space.

Another example is Thoma Bravo, which announced in August that they had purchased iPipeline, another competitor in the front-end space.

To me, these investments make sense. They may not be as technologically sexy as something like roboadvisors, but the market is ripe for improvement. The age of the policy administration systems in use is somewhat staggering, with systems that have been in production for decades. On the front-end, the Life insurance market is still surprisingly dependent on a paper application.

As someone who has been a part of this space for many years (measurable in decades), it is nice to see that the market finds room to improve.